Fitch Affirms $446MM & Downgrades $28MM of South Coast Funding III, Ltd.

NEW YORK -- Fitch affirms six classes and downgrades one class of notes issued by South Coast Funding III Ltd, (South Coast III). The following rating actions are effective immediately:

--$270,000,000 Class A-1A Notes affirmed at 'AAA';

--$107,000,000 Class A-1B Notes affirmed at 'AAA';

--$38,000,000 Class A-2 Notes affirmed at 'AAA';

--$12,000,000 Class A-3A Notes affirmed at 'AA';

--$9,000,000 Class A-3B Notes affirmed at 'AA';

--$10,000,000 Class B Notes affirmed at 'A-';

--$28,000,000 Class C Notes downgrade to 'B+' from 'BBB' and remove from Rating Watch Negative.

South Coast III is a collateralized debt obligation (CDO) managed by TCW Asset Management Company, which closed on July 10, 2003. South Coast III exited its reinvestment period on August 10, 2007. The collateral supporting the CDO is composed of approximately 19% prime residential mortgage backed securities (RMBS) and 59% subprime residential mortgage backed securities (RMBS) including approximately 37% issued between 2005 and 2007, 4% asset backed securities (ABS), 5% commercial mortgage backed securities (CMBS), 5% REITs and 7% CDOs.

The downgrade of the class C notes is a result of the deterioration in credit quality of the portfolio. Approximately 9.3% of the portfolio has been downgraded since the last review. As of the latest trustee report dated Aug. 3, 2007 the WARF has increased to 16 ('BBB/BBB-') from 15 ('BBB/BBB-') at the last review. Approximately 7% of the portfolio is on Rating Watch Negative (RWN) and in Fitch's view nearly 16% of the portfolio is below investment grade quality, including approximately 5.4% 'CCC' or lower quality. There is one defaulted asset in the portfolio which comprises 1% of the portfolio.

Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to compare the breakeven default rates relative to the minimum cumulative default rates required for the rated liabilities.

The ratings of the class A-1A, A-1B, A-2, A-3A and A-3B notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The rating of the class B and C notes addresses the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at www.derivativefitch.com. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Oct 4, 2006, available on Fitch's web site at www.derivativefitch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.derivativefitch.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.